Can $1 Billion From Google Really Solve the Housing Crisis in the Bay Area?
The tech giant's plan to add 20,000 homes will require lots of government permission slips and other investors' money.
Google made a big splash yesterday with its announcement that it would be making major investments in home construction throughout the housing-starved Bay Area.
"Today, Google is one of the Bay Area's largest employers. Across the region, one issue stands out as particularly urgent and complex: housing," wrote Google CEO Sundar Pichai in a Tuesday blog post. "The lack of new supply, combined with the rising cost of living, has resulted in a severe shortage of affordable housing options for long-time middle and low income residents."
Pichai's post says that the tech giant will devote $1 billion in company assets toward the development of housing throughout Silicon Valley, with the goal of building 20,000 new homes.
On the spectrum of socially-conscious investment to gimmicky public relations stunt, Google's $1 billion housing initiative falls somewhere in between. While its goals are bold, they also are dependent on securing government permission slips and a lot more cash from other investors.
The largest part of Google's housing initiative is the repurposing of company land worth $750 million—much of which Pichai says is currently zoned for commercial or office uses—for residential housing. Pichai estimates that this land will support 15,000 new units.
Google is already in the process of securing permission to build 5,760 homes on land it owns in the Silicon Valley city of Mountain View, where it's headquartered.
Converting office or commercial space into residential housing will obviously require the assent of Bay Area local governments and their NIMBY-inclined residents, who've been known to gum up a housing project or two.
Google has told the San Francisco Chronicle that it will lease some of its land to developers who will then build housing on it. That means Google will still be making money off the land, but not as much as if they simply sold it, according to the company.
According to the Chronicle, Google will not subsidize construction on its land, meaning whoever decides to build on it will have to raise their own capital.
Google will also establish a $250 million investment fund, which it says will be used to help finance the development of 5,000 units of affordable housing—typically housing units with restricted rents reserved for people earning at or below an area's median income.
That pencils out to a per-unit investment of about $50,000. In 2015, the median cost of building an affordable housing unit in San Francisco was about $400,000, with some costing as much as $700,000. Construction costs have only risen since then.
That means Google will only be supplying a fraction of the capital needed to build these 5,000 units. The rest of the money will have to be pieced together from state and local funding, federal tax credits, and other private investors.
Lastly, Google says that it will provide $50 million in grants to nonprofits in the Bay Area combating homelessness and displacement.
Google is not the first tech company to launch housing financing initiatives. In January, both Microsoft and Facebook announced plans to invest millions in affordable housing development.
Reactions to Google's plans have ranged from enthusiastic praise to cynical eye rolling.
California Governor Gavin Newsom—who recently passed a state budget which included $500 million for affordable housing development—praised the company's corporate responsibility, saying in a statement that "Google recognizes that it has an important role to play in addressing California's cost crisis."
Others were less impressed, with tech publication The Verge running with the headline "Google pledges $1 billion to ease the Silicon Valley housing crisis it helped create."
That latter take is unfair. Silicon Valley's housing crisis is a product of local and state regulations preventing developers from adding enough housing to absorb all the jobs that the area's booming tech sector adds (and continues to add).
Google did not create these restrictive rules, nor can it alone be blamed for the insane housing costs in the area. That said, the company can hardly promise that its housing initiative will create 20,000 units so long as many of these restrictive regulations remain in place.
Nevertheless, the company throwing its weight behind an effort to build more housing will hopefully encourage local governments to let that development happen.